View more on these topics

A question of Qnups

Global Qrops director Paul Davies says Qnups legislation brings business opportunities for advisers with high-net-worth clients

Transfers of UK pension schemes to qualifying recognised overseas pension schemes effectively started on April 6, 2006. Since that date, hundreds of overseas pension schemes, in a variety of different countries and jurisdictions, have been approved by HM Revenue & Customs to accept pension funds transferred in from UK pension schemes.

Still considered a relatively new concept, Qrops are an important retirement option for any UK financial adviser that may have a client that has migrated or is considering migrating overseas.

For some advisers, who may not come across this situation too often, Qrops can be a complex area. However, added to this area of retirement planning, Qnups, or qualifying non-UK pension schemes, have been introduced by HMRC this year.

Why have Qnups been introduced?
The Qrops rules that originally appeared in the Finance Act 2004 and Statutory Instrument 2006/206 (which was laid before the House of Commons on February 2, 2006) set out the conditions that an overseas scheme would need to meet to become a Qrops.

However, omitted from the Finance Act 2004 were regulations regarding UK inheritance tax. As things stood, UK pensions funds, once transferred to a Qrops could become liable to UK IHT. The Inheritance Tax (Qualifying Non-UK Pension Schemes) Regulations 2010 (in statutory instrument 2010/51) rectified this omission.

There are no reporting requirements for any benefits or payments made to Qnups members, as there are with Qrops, whether this is within complete tax years of the member’s overseas residency or not

These rules, which came into force on February 15, 2010 (and were effectively backdated to April 6, 2006), meant that a non-UK resident can now transfer UK pension funds to a Qrops and upon death, whether before or after the age of 75, the funds would not be subject to UK IHT.

These rules, however, do not just apply to pension schemes approved by HMRC as Qrops. Providing the overseas pension scheme fits certain criteria, it can be recognised by HMRC as a Qnups and the funds held within the scheme would not be subject to UK IHT.

How does an overseas scheme become recognised as a Qnups?
To become recognised as a Qnups, an overseas scheme has to meet some key requirements. Full details of these conditions are set out in statutory instrument 2010/501 but the conditions for the estab-lishment of Qnups are almost identical to those of Qrops but with one or two impor-tant differences.

The most important difference is that a Qnups does not have to register with HMRC. As a result of this, there are no reporting requirements for any benefits or payments made to the member, as there are with Qrops, whether this is within complete tax years of the member’s overseas residency or not.

By definition, therefore, all Qrops are Qnups but many Qnups will not be approved as Qrops.

What opportunities arise with the intro-duction of Qnups?
For a UK or non-UK resident, there is an opportunity to make contributions to overseas schemes, established as Qnups, with the knowledge that those funds will be sheltered from UK IHT.

As the schemes are overseas schemes, the level of contributions made into the Qnups would depend on the permitted maximums of the local rules of the country or jurisdiction.

However, most jurisdictions are not going to have the restriction of an annual allowance, as in the UK. Similarly, the level of bene-fits paid from the schemes would also be dictated by the jurisdiction.

There is also the opportunity, after five complete UK tax years of overseas resid-ency, to transfer funds in a Qrops into a Qnups.

This could be advantageous to those migrants who, due to unforeseen circumstances, may have to return to the UK.

If you return to the UK and your pension funds are still in a Qrops, the UK reporting requirements start again and any pension or death benefits would once again be restricted to those of the UK (or you would face an unauthorised payments charge).

If the funds had transferred from the Qrops to the Qnups before returning to the UK, then, as previously mentioned, the benefits are not subject to the HMRC reporting requirements.

Are there any restrictions with Qnups?
Although an individual can make bigger contributions into a Qnups than they could into the UK pension system – depending on the jurisdic- tion where the Qnups is established – there would not be tax relief available on those contributions.

A second restriction is that an individual could not trans-fer their existing benefits in a UK-registered pension scheme directly into a Qnups unless the scheme has already been established as a Qrops.

Conclusion
Many planning opportunities could arise for IFAs with highnet-worth clients as a result of the Qnups legislation, with plenty of overseas providers already marketing their Qnups product.

Recommended

Training programmes aim to help advisers pass level four

The Consulting Consortium and Intellego have joined forces to offer training programmes designed to help advisers pass QCF level four. TCC says programmes are based on individual firms’ needs and packages are available for both written and alternative exams. It says the training is based on Apex standards, which all QCF level four qualifications are […]

JOHCM caps EM fund

J O Hambro Capital Management is capping the size of its new Dublin-based global emerging markets equities fund at $1.5bn to deliver and sustain outperformance.

Succession signs up three IFAs

Hightree Financial Services, Financial Management Group and Total Financial Solutions have all joined IFA consolidation vehicle Succession Advisory Services. The firms have combined assets under management of more than £500m.

Greece lightning

Work is under way to address the problems with Greece and European governments are scheduled to meet to debate the crisis on May 10. However, this makes for a tight timeline, considering the country has large bond issues that fall due on May 19 and May 31, analysts at Charles Stanley noted. But while global […]

The future of active management is now

Fees under pressure. Regulatory moves against closet indexers. Rapid advances in financial technology. Shifting sentiment among investors. Such mounting challenges have led to widespread speculation about active management’s shrinking future. But a closer look inside intelligent portfolio construction today tells a story of expanding roles, added value, and innovative risk-adjusted, lower-cost solutions. Four investment experts […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. The correct SI re QNUPS is SI 2010/ 051 …..

    A key benefit of a QNUPS is the IHT protection for new contributions.

    And of course funds transferred from a QROPS (after five tax years of non UK residence) enables avoidance of UK taxes on death benefits that would arise from a QROPS if a QROPS member were to return to the UK.

    However it is important to ensure that the QROPS from which a transfer to a QNUPS is made is not “investment regulated” – otherwise HMRC tell us a 55% tax charge will apply on the transfer.

  2. Is it possible for one to access benefits prior to age 55?

    I was under the impression that the ‘member’ was able to access benefits from age 50 but I am now led to believe that if the member wishes to do this, they would have to get a loan from the scheme.

    Just looking for some clarification.

    Any help on this matter is greatly appreciated.

Leave a comment

Close

Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm

Email: customerservices@moneymarketing.com